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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16559
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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I have an self directed Traditional IRA with 20,000 shares

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I have an self directed Traditional IRA with 20,000 shares of a non trading stock that I purchased at 1.00 per share as a private placement. My Investment Trust Co. who holds the 20,000 shares of stock for me has tried numerous times to get a new stock valuation, they have gotten no response from this Company. The last time the stock was valued was April 2008. The Company is under Federal Investigation, which the Company was notified last fall of this investigation, botXXXXX XXXXXne I unfortunatly got caught into a ponzi scheme, made an investment which I know my stock is worthless. As far as I am concerned I lost my total investment, how do I claim the stock as a total loss?
I continue to get a yearly charge from my Trust Co. of 260.00 per yr. to keep the account open, I want to close the account, if I do close the account the stock will be issued to me the Trust Co. will report to the IRS that I have taken an early withdraw from my IRA account with a 20,000.00 Value to the stock, therefore owing a penalty on a stock that is worthless. How do I inform the IRS that the stock doesn't trade and is worthless so I am not held responsible to pay a penalty?
Thanks for asking your question! I'm sorry to hear about your tax issue and I'm going to try my best to help you understand or resolve it.

Basically, if this is a traditional IRA your contributions were made tax free. Therefore, as the IRA is worthless, you will not take withdrawals from it - so you were never taxed and will never be taxed on this money that you invested in the ponzi scheme. You can't take a deduction for the loss because essentially you would be getting a tax deduction twice - once when you contributed to your IRA and once when it became worthless.

You won't ever take money from the account, if worthless. Therefore there is no tax, and no reason to inform the IRS that the IRA is worthless. Even if you are issued stock, it's completely worthless and you shouldn't have a reportable event.

The only way to take a deduction for worthless IRA securities is if you made your contributions after-tax, for example a Roth IRA. In that case, you would have a loss.

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Customer: replied 4 years ago.

my issue is the Trust Co. will issue tax information to the IRS showing a 20,000.00 value to the stock, the IRS will know I took an early with drawal and expect a penalty to be paid, correct??

No - your stock is worthless. They should not issue you stock with a $1 value if it is worthless. Their distribution should be $0.

The $1 value is your basis in the stock. The value of the stock is $0.

** Please take a moment to rate my response as "Excellent" so that I may be compensated for assisting you today. Please let me know if my assistance was anything less than "OK Service", as I am compensated based on whether or not I have assisted you with your issue. If you need further clarifications, PLEASE WAIT TO XXXXX ANSWER UNTIL AFTER RECEIVING FOLLOW UP FROM ME. If I receive anything less than OK Service, I do not get paid, but the Web site will still collect your payment. Thank you for your kind understanding in this matter. If you have difficulties rating, then simply respond stating that you are having difficulties rating and thank me for my excellent, good, or ok service and we can get the rating applied by the site**
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